Apr. 9, 2008 - Transparent Real Estate Commissions

It's challenging to come up with and post commissions as they really are, and in the manner that we charge them, as there is not really one hard and fast formula.  Yet "it depends" is never a good answer, is it?

Most of our seller clients believe that home buyers find homes on the internet vs. print ads.  So almost always our commission is a flat fee that acknowledges that the seller doesn't want to waste money on print ads in newspapers or home magazines.

We had one client recently who wanted no print ads and no Open Houses who sold her home for about $550,000.  We charged a flat fee of $7,500 which we reduced to $6,000 at the end by splitting the home inspection request with her.  That worked out well and everyone seemed to be fairly happy, though all of us would have been happier if the buyer didn't want an extra $3,000 :)  That house sold to a buyer who had a buyer's agent, so the total commission to us was $6,000 and the amount to the buyer agent from another real estate company was $16,500.

Our price for listing a house is usually 2% or $10,000 whichever is less and does include Open Houses but does not include print ads.  Many if not most of our clients are both buying and selling and so the $10,000 applies to the selling their home side and then again on the buying a home side.  If they are only buying and not selling, sometimes the flat fee is $12,000 or $15,000, but rarely does that apply to someone selling their home.

That's about as simple and transparent as I can describe our listing fee at the moment.  I just want to get something down in a blog post, and will come back and review it when I have more time.  "Our" being Kim and I, and not all Sound Realty agents who are free to price as they and their clients negotiate.

We do not, by and large, keep the amount offered to a buyer agent if the buyer comes without an agent and wants that amount.  Usually that "extra" 3% either goes to the buyer's agent or the buyer or off the price, whichever way suits the buyer and the buyer's lender.

On a very low priced property or a very high priced property, there could be changes, but most often we are not dealing in a price range that requires a different price than that stated.

That covers our commission for sellers.  Usually not more than $10,000.  But what about buyers?

Our buyer clients assume a lot of the responsibility for finding property on the internet and driving by the property before asking us to meet them at the house(s) they choose.  Rarely to we "tour" homes and view everything for sale.  Most of our clients do not want to see "everything for sale".  They only want to see the ones they might buy.

If the price of the property they want to purchase is $400,000 or less, we usually accept whatever amount the seller offers, even if that amount is below our normal charge.  Often finding reasonably priced housing is more difficult due to scarcity of supply of good properties and takes a lot longer.  So our fee is generally no different from most agents in that price range.

Once you get to just under $400,000, the price is $10,000 if we are also selling your home.  If you are buying and not selling, the price is from 1.5% to not more than $15,000.

That's the best I can pin it down at the moment.  My main goal is to just get the basics down on paper and now I will review it from here or answer questions as they arise.

Transparency regarding commissions is much easier in person because it really does depend on the house type, where it is, how difficult it may be to sell, how readily available the type of property you want to buy is, etc...  But we find that most times the commission fits into a box of not more than $15,000, most often $10,000 and sometimes less.

The biggest factor is often the people themselves and how compatible our personalities are with theirs.  Sometimes we charge less for nice people :)  We never charge more for really nasty people, we just don't work with really nasty people.  It saves everyone a lot of time and trouble to evaluate how well we work together in advance.  Everyone being "on the same page" is much less stressful for our clients, and buying or selling a house is stressful enough.  So working with the right agent for you is the most important thing you can do to simplify the entire process.

Sometimes I think most agents charge a lot more than we do to compensate for having to work with difficult people.  We think nice people should get "a discount" and difficult people are not worth working with at any price, so why overcharge to compensate for them?  If our clients want to assume more of the work themeselves, or want to eliminate a service like an Open House, we adjust our fees even further.

That our clients never complain about price of our service says a lot.  No one complains that we charged too much for what they received.  That in and of itself tells us that we have hit on the correct pricing formula.

Jan. 31, 2007 - Many and Varied Fees

One thing I learned this year is that there are many different types of ways to approach a real estate purchase or sale, and many different fee arrangements to go with.

The lowest fee that I charged was $3,000 for house that sold for over a million dollars.  The buyer had happened upon the house which was not for sale.  The seller only needed to be out of the room so that the buyer could formulate their offer with a disinterested 3rd party.  I acted as a "transaction broker" representing neither part, and charged a $3,000 flat fee.

Oh, no, I forgot.  The lowest price I charged was zero.  I represented the seller and the buyer happened in just as I was receiving an offer from another agent.  He was shy and thought that since I had one offer, he should "wait and see what happens" .  He and his girlfriend lived the house and I threw in the 3% buyer agent fee so that they could get it.  He thanked me so much from beginning to end that I had to keep reminding him that he wasn't my client :)  Very nice fellow.  Worked at Boeing.  Needed no help except for writing the offer.

I charged the seller less than 2% total for both sides of the transaction.  They had the place pretty much set up when I got there, so I only had to move a few things around and bring in one truck load of accessories.  They were trying to sell it on their own with MLS4U before I came and had lost 6 weeks in the process.  They really needed to get to their new jobs out of state, so we just sold it in 4 days by giving the buyer the 3% buyer agent fee.  Because they were moving to such an expensive place, I priced my services in between their MLS ONLY option and the going rate.

All in all it was a quick and easy sale for them once they gave up trying to do it all on their own.  The did have to pay the MLS ONLY fee, as those types of services have to be paid for whether they are successful or not.  But in the end, they ended paying even less for full service than the would have if they were successful at the MLS only option.

The highest fee I charged was a full 3% on a property that needed ten days of staging to get it ready for market.  It sold rally fast but was in the $200,000 range, and there is always more room to negotiate when the sale price is highest.

So for the most part, Under $400,000 usually involves some cash toward closing if the property sells quickly or the buyer finds a home quickly and is well qualified for financing. 

People who are buying at a price of $800,000 or more, usually pay 1% to 2%, depending on the difficulty involved in finding their new home.  And those who are both buying and selling can usually save 1% off their purchase and another 1% of the sale of their home.  3% being the guildeline from which to negotiate.

And always, if the seller is offering an agent bonus...that bonus goes to the buyer.

Jan. 1, 2006 - Can I as a buyer negotiate the Buyer Agent Commission?

The Buyer Agent Fee is pre-set by the seller in the Listing Contract, and offered to your Buyer Agent by the Seller and the Listing Agent in the MLS. 

While you cannot negotiate your buyer agent's commission with the seller or the listing agent, as that is a breach of MLS rules between agents, you can negotiate the fee with your buyer agent.

There are some limitations.  Mainly there is a limit to the amount of cash you can receive in credits.  This limit is set by your lender and is often different from individual borrower to individual borrower depending on your personal borrower credentials.  By the end of the transaction, if you have negotiated credits in excess of the amount allowed, you cannot be paid "off the sheet" or "outside of closing" as that is Lender Fraud.

But you can, if you know the amount early enough in the transaction, take the difference against the Sales Price of the home.  To effect this method of credit, you need to make the changes, with the seller's signature as well since it is not a unilateral choice, before the loan documents are drawn.

Jan. 1, 2006 - My Agent says there IS a miniumum fee to list my house?

As I have indicated in another post, there is no standard fee. 

 All commissions are negotiable by law.  But that does not mean that each Company/Broker and each agent therein cannot set a minimum fee for themselves.  Some Companies have a minimum fee and have set a policy that none of their agents can do business for less than that amount.  It is their right to set policies that will insure their business is strong and profitable. 

At Sound Realty we do not charge agents based on what they charge consumers.  Consequently, we do not impose any restrictions on our agents with regard to their ability to negotiate commissions with consumers. 

It is important for you to know if you are negotiating for a Full Service Discount, or if you are negotiating for a Limited Service Discount.  Most limited service options are presented as flat fees, while most full service discounts are presented as percentages of sale price, but be sure to note this distinction with your agent at the time the fee is set in the listing contract.

From what I have seen, owners who choose the deepest discounts offer a full service fee for the buyer's representation, but not for themselves. 

 Be careful not to shortchange yourself in that regard.